Company News

The Corporate Transparency Act and Beneficial Ownership Information Reporting

October 6, 2023

On January 1, 2024, a new reporting requirement goes into effect requiring millions of small businesses to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Congress imposed this requirement in a statute called the Corporate Transparency Act (CTA), with FinCEN issuing the regulation, and every small business owner needs to know about this reporting requirement.

What Is the Purpose of CTA?

The CTA is mainly an anti-money laundering law. Congress states that bad actors seek to conceal their ownership of corporations, LLCs, or similar entities in the United States to facilitate money laundering, financing of terrorism, tax fraud, and other illegal acts. According to Congress, federal legislation is needed to protect national interests and better enable efforts to counter those illegal acts.

Who Has to File a BOI?

Every corporation, LLC, or other entity created by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe is required to file a BOI. Certain entities created in foreign countries and registered to do business in the United States are also required to file a BOI report. Entities created in the United States and required to file a BOI report are called “domestic reporting companies”, and foreign entities required to file a BOI report are called “foreign reporting companies”.

Who Is Exempt from Filing a BOI?

There are 23 categories of entities that are exempt, most being entities that are already subject to substantial federal or state regulation. Exempt entities include publicly traded companies and other entities that file reports with the SEC, banks, credit unions, money services businesses, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, and accounting firms.

“Large operating companies” are also exempt, meaning entities that (1) employ more than 20 full-time employees, (2) has an operating presence at a physical office within the United States, and (3) has filed a federal income tax or information return in the United States for a previous year demonstrating more than $5 million in gross receipts or sales.

Information to be Reported

A domestic reporting company created before January 1, 2024, has to provide information about the company and its beneficial owners and applicants. This includes the company’s full legal name, any “doing business as” names, complete street address of the principal place of business, jurisdiction of formation, and tax identification number. This also includes the beneficial owners and applicants full legal name, date of birth, street address, unique identifying number, and the issuing jurisdiction such as a U.S. passport, state or local ID document, or drivers license, and an image of the document from which the unique identifying number was obtained.

Who is a Beneficial Owner and a Company Applicant?

A beneficial owner is an individual who, directly or indirectly, either exercises control over the reporting company or owns or controls at least 25 percent of its ownership interests. A company applicant is the individual who directly files the document that creates the domestic reporting company and the individual primarily responsible for directing or controlling the filing if more than one individual is involved in the filing of the document.

When Does the Initial BOI Report have to be Filed?

A domestic reporting company created before January 1, 2024, must file its initial BOI report no later than January 1, 2025. A domestic reporting company created on or after January 1, 2024, must file a report within 30 calendar days of the date on which it receives actual or public notice that its creation has become effective.

How are BOI Reports Filed?

The initial BOI report and all updates and corrections will be filed electronically with FinCEN through a system that will be available via FinCEN’s website. There is no fee for filing the reports.

For more information on BOI reporting, please visit FinCEN’s website or contact us with any additional questions you may have.